Via ConvergEx's Nick Colas,
When will the Fed... Raise rates? Stop buying bonds? End quantitative easing? Common questions, those, from Wall Street to Main Street. And – apparently – the online world as well, because they also reflect (literally) what Google autofills when individuals pose inquiries about future monetary policy action in the famously simple Google search box.
Since Google’s autofill algorithm constantly updates commonly entered completions for the most typically searched phrases, it provides telling insight into what Americans are thinking and asking about the Fed. And because Fed related inputs are broader than the more geographically sensitive such as “Movie theater in…” or “Shopping mall in…”, completions offered by the search engine are based on larger populations. Don’t worry - we checked. Here are some of the top autofills that followed our unfinished queries:
“The Fed Will...” Three out of the top four autofills reads “Never taper”, “Not taper”, and “Never stop QE”. The Fed is on track to close out its bond buying program this month, but after almost six years with three shades of QE, it seems the public is reluctant to believe it.
“The Fed is...” Second on the list shows Americans classifying our central bank as “behind the curve”. Autofills may highlight the perception of the Fed as dovish, but not rightly so for those typing the phrase into Google’s search box. In fact, an input of “I want the Fed to” elicits “decrease money supply”.
“Interest rates will...” This phrase conjured mixed responses of “rise” and “go up”, and “fall in 2014” and “never rise”. The third wager is highly unlikely based on fed funds futures, which signal a rise in mid-2015; the question isn’t a matter of direction, but when the grind higher begins.
“Low interest rates are...” “Here to stay” autofilled first, yet “bad for the economy” and “bad” trail behind. Even still, “economic growth” and “economic recovery” appear next to “low interest rates help”. Near-zero rates may have helped stimulate the economy during the early years of the sluggish recovery, but Americans also understand that maintaining these low levels for too long could act as an impediment. “Higher interest rates will help” produce “economy” and “the economy”.
“The economy is...” Besides the doomsayers autofill of “going to implode”, “getting better” and “improving” appear. On the labor market front, “Jobs are…” produce “not enough”, “hiring”, and “hard to find”. An entry of “Wages have” paints the gloomy picture of wage inflation: “not kept up with inflation”, “not increased”, “not stagnated”, “remained stagnant”, and “stagnated”. These tensions underscore the Fed’s patience when it comes to normalizing rates.
Just as Google autofills offers a unique view on how Americans negotiate monetary policy, the Beige Book captures the economic sentiment of each regional Fed District. This information proves particularly useful in gauging the Fed’s decisions since it colors each district’s respective Fed President. Given his or her spot on the Federal Open Market Committee, we provide customary analysis of the report after it is released eight times a year. Please continue reading for our takeaways of the Federal Reserve’s “Current Economic Conditions”.
Although the Fed continued to describe economic growth as “modest” and “moderate”, the pace of growth remained largely unchanged across districts. With that said, many districts experienced “slight” to “moderate” growth in consumer spending, cited strong tourism activity, and noted retailers’ positive outlook for the balance of the year. Nonfinancial services, transportation services, and manufacturing activity also fared better in most districts. Additionally, commercial construction, real estate activity, and banking conditions—particularly commercial loan volumes—improved across most regions.
These steady trends carry over into the two components we watch most closely—inflation and the labor market—which also showed slight improvement or little change. According to the Fed, the state of employment generally stayed the same from the prior Beige Book. Finding skilled workers continued to prove most challenging for many districts, but once again helped the other half of the Fed’s “Dual Mandate”, at least in terms of increased wage pressure for some industries and professions. However, price levels were mostly reported as “unchanged” or “up slightly”.
Given the cautious tenor of the Federal Open Market Committee minutes from last week, central bank monetary policy will likely echo this report in remaining mostly unchanged. Despite the strength of the most recent jobs report, FOMC minutes showed the Fed’s concern about the impact of slow global growth on the U.S. economic recovery. This worry has riled financial markets for over the past week, and recent U.S. economic data, such as today’s weak retail sales number and negative reading for producer prices, will encourage the Fed to stay patient with respect to raising near-term interest rates.
Beige Book Summary: Overall national economic activity continued to expand in September and October, according to the Federal Reserve’s most recent Beige Book released today. Six of the twelve Federal Reserve Districts experienced “moderate” economic growth during the reporting period, while five Districts noted “modest” expansion and Boston’s economic conditions were described as “mixed”. In terms of labor market conditions, growth in employment, wages, and prices remained mostly unchanged. Employers continued to struggle finding skilled workers, which put some upward pressure on wages in certain industries and professions. What does this mean for monetary policy going forward?
While Beige Book findings suggest the U.S. economy continues to improve, this report clearly does not portend a rise in short-term rates over the near future. Given widespread global growth concerns, a large contributor to today’s market sell-off, the Fed will likely wait to see how the slowdown in Europe and China impact the U.S. economic recovery, as touched upon in the latest FOMC minutes.
